State bullet-train agency defends stipends as a way to lure bids for first part of project

Sacramento 
Only one out of five bidders to design and build the first phase of California’s high-speed rail project will win the $1.8 billion contract — but they will all get paid.

The California High-Speed Rail Authority has agreed to issue a $2 million “stipend” to all four of the losing bidders, an obscure practice used for some large-scale construction projects. Bullet-train officials say the incentive was designed to attract bidders and therefore spur better, more competitive proposals.

“It might seem curious to people at first why we would pay losing bidders, but it’s very much a mathematical proposition,” said Dan Richard, authority chairman. “We think that we’ll get better bids and lower bids as a result.”

Richard described the stipends as standard policy on large projects and added that the reimbursements do not come close to the costs incurred by unsuccessful construction firms.

Contractors last month submitted proposals to design and build the first 30-mile stretch of track for the proposed $68 billion high-speed rail system. The statewide network endeavors to eventually stretch more than 800 miles north to south with trains traveling at speeds of up to 220 mph.

Eric Christen, executive director of the Poway-based Coalition for Fair Employment in Construction and a project opponent, said in his 13 years in the business he has never seen a payout for losing bidders.

“If it was the only thing that these guys were doing like this, well, I might give them the benefit of the doubt,” Christen said. “But it’s one after another, after another, after another.”

As to the amount of the stipends, he said, “The numbers to me as a taxpayer and as a private citizen are shocking.”

Assemblywoman Diane Harkey, an outspoken critic of the project, cited the recent dust-up in arguing for legislative oversight of the rail authority.

“We’ve never had a business plan. We’ve never had a funding source. We’ve never had an accurate ridership study and we are thinking of eminent domaining hundreds of parcels,” said Harkey, R-Dana Point. “And we’re sending out bids and paying out $2 million as if we are a private company for anyone who wants to bid but doesn’t happen to win.

“It’s easy to see how this money could just be sucked out of the state and end up going into the black hole and never producing any transportation element for the people of California.”

The rail authority has been challenged in recent weeks over the way it’s reviewing the bids. Concerns have also been raised about potential conflicts of interest if the contractor gets to hire inspectors reviewing the work.

“There is a certain reality that this project gets an entirely different level of scrutiny from a wide array of people than a typical project does,” Jeff Morales, chief executive of the California High-Speed Rail Authority, said in an interview at his Sacramento office. “And that’s understandable. It’s a big, massive, statewide program.

“But I think we have people sometimes who aren’t familiar with how other projects and programs are moved forward and they see something happening here and assume it’s unique when in fact it’s not.”